RBI says focus on managing inflation, growth
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RBI says focus on managing inflation, growth

Last Updated: Tuesday, December 29, 2009, 14:37
 
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RBI says focus on managing inflation, growth
Mumbai: The focus of India's monetary policy is shifting to managing recovery and containing inflation from one concentrated on fostering growth after the global downturn, a deputy governor at the Reserve Bank of India has said."The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation," Shyamala Gopinath said in a speech delivered in Bangalore on Monday.The Reserve Bank released her speech on Tuesday. The comments, which reinforced market expectations of monetary tightening in January, pushed the 10-year benchmark bond yield up 3 basis points to 7.67 percent. It had closed at 7.68 percent on Thursday. Financial markets were closed on Friday and Monday for holidays."Surely they will tighten policy, but the question is whether they will due it before the January policy or at policy," said Piyush Wadhwa, senior vice president at ICICI Securities Primary Dealership.The next scheduled policy review is on January 29, but the central bank can change policy at any time.Gopinath's comments follow those from fellow Deputy Governor Subir Gokarn on Thursday, who said the January policy review would focus both on growth and inflation, instead of the previous policy focus on growth.Most economists polled by Reuters early this month expected the Reserve Bank to raise banks' cash reserve ratio or the proportion of deposits that banks' must set aside with it as cash by the end of January.Investors are also counting on the increasing possibility of a hike in interest rates in January or soon thereafter. India and South Korea are expected to be among the first Group of 20 nations to follow Australia and raise rates."Overall, all statements are hawkish. Rangarajan also made comments on CRR hike," said Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management, referring to C. Rangarajan, who is the prime minister's economic adviser.Gopinath said rising food prices were fuelling concerns of broader price pressures in India and the policy challenge was to address the supply-side constraints.She said effective assessment of the inflation process and using monetary policy actions at the right time would be critical."Since supply shocks take time to taper off, there is a risk that high inflation in essential commodities could affect inflation expectations over time and give rise to generalized inflation," she said.Bureau Report 


First Published: Tuesday, December 29, 2009, 14:37


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